Investors Don't See Light At End Of Siemens Energy AG's (ETR:ENR) Tunnel

Siemens Energy AG's (ETR:ENR) price-to-sales (or "P/S") ratio of 0.6x might make it look like a buy right now compared to the Electrical industry in Germany, where around half of the companies have P/S ratios above 1.7x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Siemens Energy

What Does Siemens Energy's Recent Performance Look Like?

Recent times have been pleasing for Siemens Energy as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Siemens Energy.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Siemens Energy would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. Revenue has also lifted 12% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 5.2% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.2% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Siemens Energy's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Siemens Energy's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Siemens Energy you should be aware of.

If these risks are making you reconsider your opinion on Siemens Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.